Iran defiant in face of new US gasoline sanctions

As tighter sanctions on Iran's gasoline purchases move through the US Congress, Iranian officials say they have plenty of alternative suppliers, such as China and Venezuela. But some analysts say that prices will rise for Iranian consumers.

ByRoshanak Taghavi, ContributorDecember 16, 2009

New US sanctions on international companies that sell gasoline to Iran would raise Tehran’s energy bill but won’t devastate the Iranian economy, say financial analysts in the Islamic Republic.

Iranian government officials were defiant Wednesday, saying that the country has many suppliers.

“If any refiners or trading houses for any reason can not supply us gasoline... we will refer to our long list of suppliers and find others – as we have always done – and work with them. There is nothing to stop us from going from one region to another to obtain gasoline,” says Hojatollah Ghanimifard, the National Iranian Oil Company’s deputy director for investment affairs, in a phone interview from Tehran.

“They are trying to impose these sanctions at a time when gasoline consumption in the northern hemisphere is low, so gasoline supply is more than demand. Refineries are not running at full capacity, so there will be many suppliers,” Mr. Ghanimifard adds.

Congress moves on sanctions bill

Legislation proposed by Senate Banking Committee Chairman Chris Dodd (D) of Conn., which would sanction international firms that export refined petroleum products to Iran, is similar in scope to the Iran Refined Petroleum Act passed Tuesday by the House of Representatives. The House bill would build on current sanctions penalizing foreign firms that invest more than $20 million annually in Iranian energy projects. It would also sanction companies that give Tehran gasoline or tankers and insurance for fuel transports by preventing them from doing business in the US.

Both bills are expected to allow President Obama to waive sanctions for countries and companies that support US efforts to restrain Iran’s nuclear program.Iranian financial experts say any legislation that includes waivers for Iran’s gasoline suppliers who support US efforts to curb Iran’s nuclear program would reduce the effectiveness of the new sanctions.

“A waiver would ... dilute the total impact of the whole measure,” said an Iran-based former senior financial official. But “some 20 percent to 25 percent of total consumption would be affected if the bills are implemented and carried out [with full compliance].”

Sanctions bite US allies

Sanctions have been a key component of the US strategy to force the Islamic Republic to negotiate over its nuclear program. Sanctions to date have managed to constrain Iran’s access to global capital markets and prevent the country from acquiring some more advanced energy technologies. They have also prohibited US companies from doing business in Iran. And US political pressure has brought talks between Iran and Western European and Japanese firms on new energy projects to a virtual standstill.

Despite being OPEC’s second-largest oil exporter, Iran must import more than a third of its gasoline needs due to inadequate refining capacity. Total daily gasoline consumption is roughly 17.3 million gallons (65.5 million liters), while daily domestic gasoline production stands at 11.8 million gallons (44.5 million liters), Platts reports.

Iranian analysts say the House and Senate bills could serve to bolster the domestic political position of President Mahmoud Ahmadinejad, who can look to countries such as Venezuela and China as well as the black market to meet its fuel needs.

“This is not going to be much different in essence from previous sanctions,” says a Tehran-based analyst. “It gives the government a perfect opportunity to tell the people that you are suffering because of ‘them,’ not ‘us.’”

The former financial official says that Iran would be able to secure roughly 10 percent of its total gasoline needs through “smuggling or illegal importation” if all foreign firms targeted by the proposed House and Senate bills abide by the unilateral US legislation and cut sales to the Islamic Republic.

“The government would come up with new regulations for consumer gasoline rations and prices” as a result, but shortages in Iran’s gasoline market would be substantial, he says.